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Pound Weakens for 7th Week in Longest Losing Streak Since 2008

Aug. 23 (Bloomberg) -- The pound fell for a seventh week versus the dollar, the longest slide since 2008, as data showing inflation quickened less than economists forecast reduced bets the Bank of England is close to raising interest rates.

Sterling’s world-beating rally came to an end even as minutes of the BOE’s August meeting showed two policy makers voted for a rate increase this month. Forward contracts based on the sterling overnight interbank average, or Sonia, show investors have pushed back bets on a 25 basis-point increase in borrowing costs to May from as early as February last week. U.K. 10-year government bonds snapped a six-week advance.

“People got over excited about a very early rate hike by the Bank of England and now these rate-hike expectations have corrected and sterling has come under pressure,” Hans Redeker, head of global currency strategy at Morgan Stanley in London, said in an interview. “When you look at short-term interest-rate volatility, that is never good for a currency in the long run.”

The pound fell 0.7 percent this week to $1.6577 at 5 p.m. London time yesterday after dropping to $1.6562, the lowest level since April 4. The U.K. currency gained 0.5 percent to 79.86 pence per euro.

Sterling fell 1.6 percent in the last month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. While the pound has strengthened 6.9 percent this year, it was overtaken by the New Zealand dollar as the best performer among the indexes.

Dissenting Voices

While BOE officials Martin Weale and Ian McCafferty said “economic circumstances were sufficient to justify an immediate rise in bank rate” in the minutes, data published by the Office for National Statistics on Aug. 19 showed the rate of consumer-price inflation fell to 1.6 percent in July from a year earlier, compared with 1.9 percent in June.

The 10-year gilt yield rose eight basis points, or 0.08 percentage point, this week to 2.41 percent. That’s the first weekly increase since the period ended July 4. The 2.25 percent bond due in September 2023 declined 0.63, or 6.30 pounds per 1,000-pound face amount, to 98.75.

Reports next week will show U.K. house-price growth stayed at slowest pace in 15 months in August and GfK NOP Ltd.’s sentiment index rose from the lowest level since April, according to the median estimates of economists in Bloomberg News surveys. The Debt Management Office is due to auction 900 million pounds of inflation-linked bonds maturing in March 2040 on Aug. 27.

Financial markets in the U.K. will be closed Aug. 25 for a Bank Holiday.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Keith Jenkins, Lukanyo Mnyanda

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